I presented this deck at the 2014 PreMoney Conference. I wrote a blog post here that goes into more detail: http://bit.ly/ChangingVC
The video of the presentation I gave is here: http://youtu.be/5MClCBUjbbE
The VC industry is changing. The press has focused on the wrong story - crowd funding. The bigger story is the shift from public financing to private financing and the bifurcation of the venture industry. This presentation examines the case.
2. 2
To read my full blog post about this
presentation and watch the video see
links in description below.
3. 2014 appears to be the most active for LPs
the since recession
$23.1
$34.6
$36.0
$29.5
$12.6
$19.5
$24.7
$20.3
$18.4
$40
$35
$30
$25
$20
$15
$10
$5
Source: 2Q 2014 Pitchbook US Venture Industry Datasheet . Annualized 2014 fundraising based on 49 funds closed in Q1. PwC “Asset 3 Management 2020”
$8.8
159
183
164 171
102
121
97
132
147
~200
250
200
150
100
50
0
$-
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Est
Capital Raised ($B) # of Funds Closed
Q1
4. The Dot Com
skepticism from
LPs has finally
thawed, but
some things
have changed…
5. Seed funds now a well accepted norm (67%
of all funds). Starting to hear talk of “seed co-investment
or opportunity funds”
33%
Share of VC funds raised < $50M
40%
*As of Q1 2014. Source; Q2 2014 PitchBook US Venture 5 Industry Data Sheet
54%
67%
2008 2010 2012 2014*
Represents 6% of total $ raised
6. But overall LP capital has continued to
concentrated in later-stage funds with 66%
of all money in big funds
Share of VC $ funds raised > $500M
39% 43%
*As of Q1 2014. Source; Q2 2014 PitchBook US Venture 6 Industry Data Sheet
59%
66%
2008 2010 2012 2014*
7. Traditional VC is what has been impacted
the most decreased in dollars and funds
44%
# of Funds (%)
$100M - $500M
33%
23%
18%
2008 2010 2012 2014*
53%
$ Funds Raised (%)
$100M - $500M
*As of Q1 2014. Source; Q2 2014 PitchBook US Venture Industry Data 7 Sheet, Atelier Advisors
45%
32%
26%
2008 2010 2012 2014*
8. Some obvious factors driving later stage LP
investment
8
q Pension funds & other large asset managers
need to write big checks
q FoFs need to show they have access to the
top historical winners
q Continued perception / narrative of “the best
and the rest”
But this is too simplistic
10. The structure of the startup / venture
market has started to change
10
1. Startups staying private longer prior to IPO
2. More value captured by private investors
3. VC funds thus raising more growth &
opportunity funds to back pro-rata in winners
11. Companies are raising larger amounts of
capital before going public
$49
Median amount raised prior to IPO ($M)
$43
Source: Dow Jones Venture 11 Source 2014 via EY
$72
$83 $78
$101
2008 2009 2010 2011 2012 2013
12. Capital sources for late-stage private
companies up dramatically
• Hedge funds
• Mutual funds
Traditional
VC investors
12 Source: CB Insights
Traditional
public investors
• Growth
funds
• Opportunity
funds
Moving
Later
Moving
Earlier
New
Corporate
VC Entrants
• Google
• Rakuten
• Alibaba
13. IPOs are happening, they’re just being
delayed
2 3 2 2 2 1
Source: NVCA 2014 Yearbook 13 - Thomson Reuters
21
17
9 13
2008 2009 2010 2011 2012 2013
No. of IPOs with market cap > $1B
No. of IPOs with market cap > $10B
14. So private investors capture more value,
encouraging greater pre-IPO funding. Early
investors want to capture pro-rata
Current market cap:
$125B+
$150B+ $340B+
$0.2 $0.4 $0.8
$4.3
$18
$104 $150+
Cisco Amazon Microsoft LinkedIn Twitter FB Alibaba
(est)
Market Capitalization at IPO ($B)
Previous Tech Cycle New Tech Cycle
Source: Quigley Report 14 2011, FLAG Capital
16. The Kauffman Report was wrong. It’s
morning in VC
50x more internet users: 2.4B in 2012, 44M in 1995
120x faster online speeds: 6.7 mbps US average today
vs. 56k modems
People are mobile: Personal, location aware. US has 164M
smartphone users & 119M tablet users in 2014.
People are socially connected: 1.3B+ MAU on FB,
250M+ on TWTR, 300M+ on LNKD.
Credit cards on file: 1B+ digital shoppers and $1.5T
ecommerce spend globally. $35B Apple app store in 2014
Sources: U.S. Bureau of the Census, World Bank. As of Q2 June 2012. Akamai. 2014 Statista forecasts, 16 : eMarketer, WSJ
17. Public company startups are significantly
more mature than their 1.0 counterparts.
Years to IPO
(from 1st financing)
3.1
7.4
IPO in '00 IPO in '13
Revenue ($M)
$35
$102
IPO in '00-01 IPO in '13-'14
Valuation/Revenue
13.3x
Multiple
Source: Age from NVCA 2014 Yearbook – Thomson Retuers, Revenue & Multiples from Pitchbook Tech Valuations Presentation 17 (June 2014)
5.3x
IPO in '00-01 IPO in '13-'14
18. But late-stage private financing still
produces some lofty late-stage valuations
When a concept works the competition is
fierce
More seed rounds as
costs decline & sources
of capital increase
Seed Stage Early Stage Later Stage
Source: Graphic 18 from Bullpen Capital
Larger
later stage
rounds after
Traditional VC validation
Today’s VC
19. Thus late-stage valuations have risen fastest
in past 4 years. That’s the trend to watch
carefully
Median Pre-Money Valuation ($M)
$3.2
$6.7
$19.9
$1,000
$100
$10
2010 to 2014 CAGR
Source: Source; Q2 2014 PitchBook US Venture Industry Data Sheet, 19 * As of Q1 2014
$37.1
$66.1
$5.9
$11.3
$28.1
$62.3
$155.0
$1
17% 14%
9%
14%
24%
Seed Series A Series B Series C Series D+
2014*
2010